LINDA JENSEN – About five million people have a good chunk of their retirement savings in the TSP (or Thrift Savings Plan), but there are many of them are not using it to its full potential. What is the TSP? It’s the government’s correspondent to a company’s 401(k) plan.  Money is automatically put into a plan each pay period into at least one basic investment option. The great thing about the TSP is its simplicity – unlike other plans. It provides a limited number of investment choices, which decreases the chances for mistakes. It also gets rid of asset classes that add to the long-term value for people looking to save for retirement.

The Thrift Savings Plan provides target-retirement date funds, making it really simple to choose an investment to save into. As an investor get closer to retirement, the investment gets a little riskier to ensure they have enough money for retirement. There are five choices with the TSP:

• C – Considered a clone of the S&P 500
• F – Index of government and corporate bonds throughout the world
• G – Investment of short-term U.S. Treasury securities
• I – Investment of International stocks of 21 countries (U.S., Canada, etc.)
• S – Index of all stocks in the U.S. not seen on the S&P 500

Each choice is exposed to both small and large-cap U.S. stocks, international stocks, the basic bond market, and a cash-like, risk-free option.  The biggest weakness of the options is that there is no value option. In the last 10 or so years, value stocks have constantly offered great long-term returns in growth stocks of the TSP’s S and C funds.

If you go for a TSP option, you can attain high long-term results from the S Fund, which means you’re investing the portfolio in small and mid-cap stocks for an extended period. These funds have done much better than stocks seen in the I and C funds. Aggressive investors could put up to 80 percent of money into the S Fund. More conservative investors could boost the expected returns into equity funds, with an increase in combined equity between 60 and 70 percent. For every extra 10 percent in equities, the long-term expected return increases 0.5 percent a year. While this does not seem like a lot, it can make a huge difference over the span of 20 to 30 years. It also means you have much more money at the time you want to retire. If the investment is in a target-date TSP fund, a person could allocate another 10 to 20 percent of their typical contribution to the S fund.

While the TSP has no value options, you can always have an outside account to complement the TSP. For example, the Roth IRA is one option that allows you to contribute $5,500 a year or $6,500 a year if you’re older than 50.  How do you do this? Invest the whole IRA into small and large-cap value stocks, emerging markets stocks. However, if you have a minute amount of money to go into this, you’ll have a great long-term option if you add the small-cap value either with a low-cost index fund or ETF.

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Articles from Linda Jensen:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | How to Successfully Fund Your Retirement Years

The number of couples getting divorced each year is quite high, and dividing up assets can be tricky. If you’re a current federal worker or a retiree who is getting divorced, it’s important to understand how the court will affect your TSP. 

Currently, there are no federal laws that former spouse automatic access to the TSP balance. You can either agree to add it to the division of assets, or the state will provide the awarded amount. The TSP will need a Retirement Benefits Court Order after the divorce. This can come from the divorce decree, legal separation or annulment or it can come from the court-approved property settlement agreement. 

The TSP has a Court Orders and Powers of Attorney booklet that you can find on the TSP website under “Forms and Publications.” It’s a 31-page booklet with a plethora of useful information, layman language and a checklist to help you and your attorney to create legal-looking documents. You can also find RBCO requirements in the booklet.

Once you have a court order in place, the TSP account will be frozen, and you won’t be able to get a loan or make withdrawals until the divorce is finalized. If there is an outstanding loan on the TSP account, the remaining loan balance is added into the account balance to determine how much the spouse is permitted to have unless the court order deems it can be excluded. The court order will provide the award in either percentage or award amounts. The TSP cannot be made to pay more than the current account balance.

The TSP goes along with the FERS annuity and CSRS, which means there are different rules for each one. You can learn more about these rules by going to the Handbook for Attorneys on the Office of Personnel Management website. If you’re getting divorced, it’s imperative that your divorce lawyer has a good understanding of the rules regarding federal benefits. It may not be enough to have a standard QDRO unless specific criteria are met. If there are no attorneys who understand the federal rules regarding your TRP and other federal benefits, give them the handbooks to read and familiarize themselves with.

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Articles from Linda Jensen:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | Top Four Tips for IUL Shopping

The Dow Jones Industrial Average had a rough start to 2018, with last month seeing a one percent decline in the C Fund, a two percent drop in the I Fund and a 0.2 percent increase in the S Fund.  However, an increase in U.S. interest rates are putting down negative pressure on stock valuations, but it’s the fear investors have on the trade wars that are affecting the TSP performance.

This is why you should diversify your portfolio.

For many years, the U.S has had relatively low import tariff rates compared to other parts of the world. With the nation threatening higher tariffs, there are two possible outcomes that could happen:

Other countries could lower their own tariffs, aligning them with the U.S. tariffs, ensuring that U.S. tariffs stay low. This means U.S. products would be able to compete ina global market.

Other countries could resort to retaliatory measures such as raising their tariffs, which would mean high tariffs for all nations, reduced worldwide trade and boost protectionism.

The Trump Administration has already announced it would implement tariffs on an extra $200 billion of Chinese products, and even flirted with the idea of imposing a 25 percent tariff on all European car imports. The current European car tax rate is 2.5 percent with European trucks taxed at 25 percent. The EU taxes the U.S. vehicles at 10 percent.

With countries looking at the second option in response to the U.S.’ moves, it means markets are on shaky ground. Many well-known U.S. companies – Apple, Caterpillar andothers, see a large part of their revenue from countries like China. For them, a trade war is risky.

For smaller companies that don’t have a lot of international exposure, tariffs are unlikely to affect them as much. Thiscould be why the S Fun appears to be doing better than the C Fund.

OPEC Will Boost Oil Production Slightly

Energy stocks have seen a boost thanks to OPEC’s decision to increase the production of oil slightly. This helped to ease investors’ concerns that OPEC would continue to reduce its production, which would have a negative impact on the energy stocks.

OPEC’s decision would help in one of two ways – stabilize the market or decrease the price of oil slightly. This would help consumers and businesses who often face higher prices during the summer months. When oil prices are astronomically high, it causes the economy to slow down and cause a recession. Therefore, a decision to boost oil production output can decrease the potential of this happening.

Federal government officials recently announced how they’re going to offer TSP participants for additional flexibility in response to the law President Donald Trump signed last year.

The 2017 TSP Modernization Act lets federal employees and retirees make several age-based withdrawals from their accounts and still be eligible for the partial withdrawals when they finally leave their government position. People who leave their government post can make several partial post-separation withdrawals as well.

During the Federal Retirement Thrift Investment Board meeting, project manager supervisor Tanner Nohe informed others that agency employees were working on implementing the new law, which went into effect in November 2017.  The law’s full implementation is expected September 2019.

According to rules presently in place, TSP participants can only make one partial withdrawal in their life – one after they leave federal service or one in-service at 59 1/2. Once the withdrawal has been made, they can no longer take money out of the account unless they want to make a total withdrawal – either in the form of an annuity, monthly payment or lump sum.

Nohe said the latest rules allow for participants to make multiple withdrawals –once every 30 days. They can also make in-serve based withdrawals four times a year if they want.  He said the change is more of a processing rule than anything – a way to avoid duplications and mistakes.

The law gives participants more flexibility in how much and how often they want the monthly installment payments to be. Before the act was passed, former federal employees could get payments on a monthly basis, with changes as to how much made only during the open enrollment season – October through December.

With the impending changes, participants can choose to receive their TSP payments three ways – monthly, quarterly or yearly. They can also make changes to the amount and frequency whenever they would like and participants will be allowed to stop and start the installment periods. Retirees can make partial-post separation withdrawals even if they’re getting regular payments.

Nohe said before the new laws’ provisions are enacted, the TSP will stop the account abandonment practice in August. According to current TSP and ITS rules, a 70 1/2-year-old participant is required to make a full withdrawal and take the necessary minimum distribution amount out every year.

A person who fails to do this means the TSP moves their money into the G Fund – the government securities that amass a statutorily mandated interest rate and forces participants to make them aware of changes.

Kim Weaver, spokeswoman for the Agency, said this typically causes people to reach out to them, letting them know how they want payments to be set up and what amount of money is to be reinvested in their other portfolios.

Nohe said the change means a full withdrawal option is no longer needed. Rather than abandoning accounts, the agency sends participants a check for the minimum withdrawal payment as noted by law. Participants can also choose if the required payments be withdrawn from their Roth or standard account or the combination of them.

Capitol Hill recently held a touchy hearing and debate about the practice of union federal employee members being paidwhile carrying out representational duties. The matter ended with an executive order to reduce its use.

House Oversight and Government Reform Committee Republicans attacked the official time practice in a hearing that didn’t include any information from employee groups. According to Republicans, this official time is a waste of taxpayer money. It was more of a subsidy.

Democrats, on the other hand, said official time leads to agencies saving money. Their explanati0on is that they help foster relationships between management and labor, decrease the number of formal grievances and litigation and let the parties work alongside each other to ensure more efficient operations are in line. They also work together to deal with future issues and enterprises.

Republican lawmakers looked at the 2017 fiscal year and found that more than 980 employees spent half their time on official time – 221 of those employees were earning $100,000 a year. Perhaps the issue was a vision because the very next day, President Donald Trump made it easy – through a series of executive orders – to fire employees who were not performing their duties and restricted their use of official time.

In one order, agencies could limit employees’ official time use to 25 percent of their workday when they were negotiating with unions. It barred employees from using the time to represent employees who were filing a grievance or appealing negative personnel action.

Federal employee unions have since denounced these executive orders, claiming they were nothing more than an assault on collective bargaining. The National Treasury Employees Union and American Federation of Government Employees said they were considering possible legal action to stop the orders from going into effect.

TSP officials, however, said they were in the initial phase of increasing the default contribution rate on any new federal employees, which would mean they could automatically benefit from the matching contribution the federal government provides when they become a public servant.

Ravindra Deo, TSP executive director, said starting in October 2019, all federal civilian employees hired after the date would automatically submit five percent, rather than three percent, of their pre-tax income into the 401(k)-like retirement savings program.

Kim Weaver, TSPspokeswoman, said the program has more than 70 percent of its participants contributing five percent, which is the maximum the federal government offers in matching funds. Weaver said the announcement about the increase in the default contribution rate gives agencies time to prepare their fiscal 2020 budget proposals for the new policy.

TSP officials said they were making the necessary moves to implement the 2017 law that allows federal workers and employees be able to easily withdraw money from retirement savings accounts. The implementation is set to go into full effect September 2019. When it does, participants can request partial withdrawals once a month after leaving federal service and four times a year for those still working for the government and are 59.5 years old.

For those already getting their withdrawals, they can make changes to how often the payments and how much the payments can be anytime rather than waiting until the open season period.

LINDA JENSEN – The Thrift Savings Plan will have broader withdrawal choice come September 2019.  This may be disappointing news for investors who were hoping the action would come quicker. Authorities in charge of the changes did not enact them until late 2017 despite years of backlash that the withdrawal choices were extremely limited.

According to the board, the date would ensure the changes would go into effect, despite rumors that several of them would be offered earlier.  The Board said the law’s implementation would take time, using most, if not all, the two years it was given to enacting it.

Surveys were conducted about the TSP, and it showed that many separated participants put their money into other retirement accounts like IRAs. Why? These offered provided them with more options to withdrawal. In its current form, the TSP only allows participants to make one partial withdrawal after they separate with an additional withdrawal to cover the rest of the balance.

This partial withdrawal isn’t eligible to those who had an in-service “age-based” withdrawal either. This kind of withdrawal is only available one time as well.

With the announcement of the September 2019 debt, the TSP included some information about the new policies it would enact. For example, the TSP will limit how many age-based in-service and post-separation withdrawal could be made. There will be four age-based withdrawals allowed each year, with no limit on the number of post-separation withdrawals.

The new law would offer greater flexibility in choosing substantially equal withdrawals. Right now, there is the monthly payments option, with account holders given the option to change the amount just once per year. For people who want to stop the payments must withdraw the remaining amount in the account.

In September 2019, people will have the option to make changes quarterly or yearly – changing how often or the amount paid. There are also changes to the lump-sum requirement. The law still applies in that investors must the minimum distributions beginning when they turn 70 1/2. What has changed is that they don’t have to make a full withdrawal decision then.

The TSP had previously said an upcoming change not included in the law would also be included. It would let account holders with both Roth and traditional balances determine what amount of the partial withdrawal they want removed from both times. At this time, withdrawals must be about equal from each account.

Linda Jensen is the principal and owner of Asset Care & Preservation Services with offices in Olympia, WA.  Linda began her career with Prudential Preferred in 1994 where she was an agency leader.  She earned the credentials of a financial planner and has been in practice as an investment and insurance professional since that time.  Linda started her own company in 1997.

Other Articles from Linda:

Linda Jensen | How to make the most out of your TSP Plan

Linda Jensen | Top Four Tips for IUL Shopping

More than 200,000 military personnel have signed up for the new Blended Retirement System. That’s the word coming from the federal government officials in charge of the 401(k)-like retirement savings Program – Thrift Savings Plan.

Starting Jan. 1, 2019 the federal government will start to match the TSP contributions of active duty service members. However, the tradeoff is that they will not be offering the kind of defined benefit pension plan current employees are used to. New armed services recruits will be automatically signed up for the BRS, and current active-duty members will have until Dec. 31, 2018to sign up for the program or stick to their current plan.

Tee Ramos, TSP Director of Participant Services, said 205,274 people had enrolled in the new program as of May 31 – reaching 52 percent of the armed forces. He said the number of opt-ins is a bit below than their projections due to a misunderstanding for people who had enlisted in the service before Jan. 1.

Ramos said the projections were off because they had anticipated automatic enrollments of those signing their contracts in 2017 but deferring enlistments until 2018.  He said those that did those were actually not automatically enrolled, throwing the numbers off.

The Office of Personnel Management said military retirees and family members would soon be granted access for expanded government-administered dental and vision insurance. Until now, the majority of federal civilian retirees, retired reservists, military survivors and their families were eligible for enrollment in the Federal Employees Dental and Vision Insurance Program.

However, the Nation Defense Authorization Act of 2017 gives them increased eligibility for these services.

The TRICARE Retiree Dental Plan will end in 2018. This plan offered coverage to those newly FEDVIP eligible participants. Those already enrolled in the TRICARE plan will have a chance to switch to the FEDVIP during the open enrollment season – Nov. 12 to Dec. 10.

The OPM said the FEDVIP has no automatic enrollment plan, which means individuals will have to make the switch themselves during that time. The agency has created a website that offers information about the program for the 5.4 million eligible employees and families to alleviate the transition process.

President Donald Trump has been pushing for a pay freeze for civilian federal employees, but a Senate panel recently pushed back against the idea. The panel opted to approve an appropriations bills that offered a 1.9 percent increase to federal workers starting 2019.

The Senate Appropriations Committee, in a 29-2 vote, approved the Financial Services and General Government Appropriations bills for 2019 after it voted down the Republican amendment that eliminated the pay raise to these workers. The appropriations committee on the House Side did not have any provisions regarding federal employee pay, which meant the White House could move forward with its pay freeze proposal.

A conference committee will have to take a look at the pay increase if both chambers agree to their versions of the spending package.  The Trump Administration has also asked for a $1 billion interagency workforce fund that officials claim would kick-start pay based on performance efforts and office the pay freeze, but no mention of it was in either the Senate or House appropriations bills.

News of the impending benefits cuts is spreading like wildfire. Among these proposals are changing from a high 3 to a high 5 tension estimation method, COLA reductions, and hiked FERS contributions.

Recently, the Office of Personnel Management asked Congress to help narrow the gap between federal benefits and those of the private sector. Although the proposal has been drawn out, it seems likely that Congress will alter federal benefits. On the other hand, federal employees may create their own retirement plans to cater for their future.

But what impact will these proposals have? Below are a few examples to consider. For a deeper analysis of the effect of this proposal see this post.

A change from a high 3 to a high 5 benefit estimation process entails assessing an individual’s years of service, overall salary, and other factors that affect the amounts of pension they receive.

Let’s assume an individual with federal service equal to 20% of their high 3 or high 5 for that matter. Next, we require knowing which five years of federal service they had the highest salaries. To compute their pension, we average their highest 3 or 5 years salaries, taking out 20% of this figure. For example, an employee has $70,000, $72,000, $74,000, $76,000, and $78,000 as the highest five years salaries.

One may respond that it is impossible to get these kinds of salaries. Even so, there are two factors that are responsible for these kinds of wages. One is that these amounts are the result of periodic promotions or raised somewhere along their highest 3 year period.

The second reason could be wherein individual receives a raise during their highest 5 years of service. The proposed changes would extend his pension estimation from high 3 to high 5. If for five years one had a salary of $50,000, then their pension will be based on a salary of $50,000.

Let’s consider increases from$70,000 to $78,000, and then their high 3 could be the three last year with an average of $76,000. However, using high 5 estimations, their average would be $74,000. For both cases, 20% of this figure equates to $14,800 for high 5 and $15,200 for the high 3. The implementation of this proposal would create a reduction of $400 to an individual’s annual pension. All the same, a decline of this type is minimal. On the other hand, this reduction may increase due to higher salaries, higher percentages, or because of a salary hike in one year causing a higher average. In regards to one’s total pension, the adjustment from high 3 to a high 5 will cause a lower minimal reduction.

Finally, federal employees will make higher contributions towards their pension schemes. The date of one’s hire determines the amount individuals contribute. Since 2013, the percentage of withheld salary was revised upwards. Though this adjustment was implemented, it only affects those hired since then.

Nonetheless, this proposal will affect current federal employees not just those hired after 2013. At present, it is impossible to predict how much an employee’s contribution will be with some workers paying 0.8% to 4.4%. This proposal will affect some employees more than others. According to the Congressional Budget Office, this amount may increase with 5.8%.

For example, if we apply this percentage to $100,000, then itis possible to estimate the actual reductions. Changing from 0.8% to 5.8% is a considerable jump. However, it is expected to be introduced through phases, meaning this is an increase of $5,000 for a $100,000 salary.

As this $5,000 figure comprises an employee’s taxable income, the reduction would be less. Consequently, it might be just a few dollars on an employee’s paycheck. For instance,an employee used to pay4.4% of his salary towards their pension ends up paying 5.8%. This will still make a difference in their pay, though this will be on their net taxes not as a reduction.

Only time will clear up the situation. Interestingly, lots of concern will be expressed regarding these changes. Keep checking with us for more stories about these developments.

Nowadays, Artificial Intelligence is the rage across different industries. Surprisingly, the insurance industry is a significant investor in AI-driven technology.    A 2017 Global Trends Study estimates that the insurance sector spent an average of $124 million in AI technology. Interestingly, this amount is $54 million more than the average of other surveyed industries. Recently, QBE, a global insurance powerhouse, invested massive amounts of funds in HyperScience, a machine learning company. What’s more, this is not QBE’s only AI investment.

Even so, a raging debate is ongoing regarding the benefits and drawback of AI technology. As a result, players in the industry have organized a summit to address the use of machine learning.

In the AI ecosystem, chatbots are essential elements. For instance, Allstate introduced a chatbot known as Allstate Business Insurance Expert (ABIE). Additionally, Singapore Life’s SingLifeChatbot helps clients on Facebook process their life insurance applications.

Consider the above examples as just the tip of the iceberg as many more companies are adopting the use of AI in business. Nonetheless, this is not to imply that the insurance industry has a monopoly over AI-powered chatbots. What is most surprising is the industry’s affinity for AI.

Despite perceived unsexiness of the insurance sector, it stands to reap tremendous benefits from AI applications. In particular, the widespread adoption of chatbots is a trend, now and in the future. Below are a few ways in which chatbots benefit insurance companies:

Data from a recent survey indicates that insurance jargon confuses 72% of clients. For instance, most consumers find it challenging to tell the difference between whole life insurance and term life insurance. But that needs not be the case, as chatbots can help reduce or eliminate confusion. Chatbots can translate complicated terms into everyday language as well as guide consumers through processing steps.

The difference between the FERS or CSRS Annuity and the TSP is that the annuity is based on your years of service, rather than how much you have contributed, and is also voluntary, as opposed to the annuity.

Regardless of which retirement system you qualify for, contributing to the Thrift Savings Plan is vital to your retirement, primarily if you contribute early. TSP compound interest means that the earlier you start to make contributions, the better. However, if you did not start saving at an earlier point, committing to a steady and consistent contribution schedule will almost always produce positive results.

Regrettably, difficult controlling events lead to insured claims. In the event of a disaster, policyholders are restricted to filing claims during business hours. Unlike human who needs to recharge, chatbots can work 24/7 365 days. Even better, chatbots can handle all types of traffic without fatigue. This meansthat clients no longer need to wait on hold for a customer care rep.

If you have invested in Bitcoin, Dogecoin, or any number of other alternative cryptocurrencies, you may be obligated to reveal those holdings.

A new US Office of Government Ethics (OGE) order requires all federal employees to disclose any crypto assets they own. The guideline issued on June 18, 2018, affects 2 million federal executives and departments. This guideline includes the Departments of the Army, Homeland Security, Justice, and Veteran Affairs.

In its foresight, the OGE does not recognize cryptocurrencies as legal tender or real currencies. All crypto assets, regardless of the acquisition means or distribution channel, are subject to the OGE’s published guidelines. For this reason, employees should report all digital currencies where an asset’s value exceeds $1,000 or an income of over $200. Plus, employees must provide names of the digital currency and the exchange or platform holding it.

In its rationale, the OGE argues that due to the popularity and increased adoption of cryptocurrencies, federal employees holding virtual assets are ethically concerned about disclosure obligations.

Hence, the OGE ruled that federal employees must file all transactions involving crypto asset investments. Even so, reporting depends on whether a digital asset qualifies as security. Where doubts exist, employees should periodically report all digital transactions exceeding the reporting threshold.

As digital currencies are an “investment asset,” they can create a conflict of interest for the owner. What’s more, no conflict of interest exemption applies to employees holding digital assets. Nonetheless, the OGE will provide further guidance in tandem with the evolution of digital currencies.

In March this year, South Korea banned public officials from transacting or owning cryptocurrency assets. Interestingly, it’s the first recorded instance of the state prohibiting its public officials from holding digital assets. As a result, any public official transacting in virtual currencies violates civil servant’s code of ethics and practice and is liable for disciplinary action.

LINDA JENSEN – Obtaining a universal life insurance policy that suits your unique needs is often a challenging undertaking. But why is that so? It is because universal life insurance policies are flexible products. Given that, selecting the right one requires that you evaluate between numerous available options. Most likely you might end up empty-handed.

Let us help you help you get acquainted with what it entails to get universal life insurance. Here are our four top tips for buying IUL.

Avoid relying on advice found online as there are many providers and calculators out there. Keep it in mind that you might be persuaded to purchase the cheapest option. Nonetheless, this might not be a suitable option for you.

Remember that many options are available for you to select from when shopping for an IUL. Consulting with independent brokers pays off when evaluating between multiple providers. Hence, you should go for a broker that specializes in indexed universal life to help you pick the best policy for you.

Having living benefits is a bonus for many life insurance policyholders. Living benefits are policy riders that offer you benefits before your demise. These riders let you access a portion of your death benefit while still alive. Following is a list of all benefits that you are entitled to in an IUL policy.

• Terminal illness benefits: this benefits applicable to terminally ill IUL policyholders with 12 to 24 months to live
• Chronic illness benefits: applies to insured individuals who have deficiencies in completing essential living activities
• Critical illness: this benefit is given to individuals who have cancer, kidney failure, or are at risk of heart attacks or strokes. The severity of these conditions determines the size of your lump sum payout. For instance, if you have Stage 3 cancer, the lump sum payout is higher than if you had Stage 2 cancer.
• Critical injury: this benefit is provided to clients who are in a coma, with traumatic brain injuries, paralysis, or severe Typically, a majority of companies don’t offer this benefit to their employees. This is why you need to talk with your insurance broker to get you a policy that includes this benefit.

Note that living benefits are a lifesaver for your portfolio as they provide you with an alternative to other standalone solution, for instance, long-term care. This is especially important for families that have limited resources.